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Politics Pushes Back Against Nuclear Cost Overruns

Building the first new nuclear reactors in decades has generated a lot of buzz for Southern, but it has come with an equal dose of scrutiny.

Politicians who supported the construction of new nuclear reactors in their home states are in meltdown mode. Instead of thermal cooling towers, the only thing soaring over the skylines are budgets. Southern (NYSE:SO) announced at the end of February that it needed $737 million more than originally expected for the construction of its two new reactors at Plant Vogtle in Georgia. The project will now cost $15.15 billion, if, that is, the price tag isn't revised upwards again.

The cost overruns seem to be the last straw for Georgia and Florida -- two states betting big on a nuclear renaissance -- as the process for collecting project funds has also come under fire. One infuriated politician wants to penalize Southern for going over budget, but the angry mob is focusing its anger on Progress Energy and Duke Energy (NYSE:DUK). Regulators aren't taking it easy on the companies and their subsidiaries, either.

You won't like him when he's angryThe Florida Public Service Commission aired some dirty laundry from the now merged companies by stating that they collected nearly $819 million from their customers over the past several years for two nuclear projects: expanding the Crystal River facility and building an entirely new plant in Levy County. While there is nothing wrong with collecting funds from ratepayers for such expenditures, neither project has gained regulatory approval. In fact, the Crystal River project was scrapped after the facility was damaged beyond repair during the expansion.

Even worse, the company maintains that the first reactor at Levy won't be operable until 2024 at the earliest. Yikes. I'll take a guess and say that none of the funds will be returned to customers if the application for the Levy County reactors fails to impress the Nuclear Regulatory Commission, or NRC. Regional politicians are right to be concerned.

Customer relief?Politicians from both sides of the aisle are proposing bills that would prohibit or significantly limit the amount of funds utilities are allowed to collect pre-construction. The bills also want to ensure that companies don't profit from nuclear plants that never leave blueprint canisters. Whether companies will be required to pay a fine to the state or give credits to customers remains to be determined.

Do customers reserve the right to be upset? Absolutely. (I don't even live in Florida and I cringed when I heard about it.) However, I believe basing your opinion of nuclear energy on the high costs of construction alone is a bit unreasonable. I recently explained that position in more detail, showing that the low cost of fuel and maintenance actually makes atomic energy cheaper than other energy sources in the long term. There's a reason the NRC has pending applications for 28 new reactors to review -- four more than the total submissions facing the Department of Energy for LNG export terminals.

Who else is affected?Should the proposed bills become law, there is some potential that utilities get spooked and drop their nuclear ambitions. Not every company will be able to fund construction with restricted collection systems in place, while others may worry about paying fines for over-budget projects (the industry norm). Here's a quick list of proposed nuclear projects elsewhere:

You'll notice that Exelon (NYSE:EXC), the leading nuclear company by capacity, isn't planning any new reactors at the moment. The company has 17 reactors in operation today that generate 140 GWe of electricity annually. Rather than add to its lead, Exelon is seeking to expand its renewable energy portfolio and boasts the largest urban solar project in the country.

Foolish bottom lineIt's unlikely that all of the pending nuclear projects will be approved. Nonetheless, it's probably a good thing that these kinks are being ironed out at new reactor No. 3 -- not somewhere further down the road. Remember, a lot has changed since the last reactors were approved in 1978, so problems were bound to arise at some point. Investors will want to keep an eye on this development and see whether it scares any utilities away from expanding their nuclear capacities. However, it may have a negligible impact, given the diverse generating portfolios throughout the industry.

Author

Maxx has been a contributor to Fool.com since 2013. He graduated from SUNY-ESF (2012) with a Bachelor of Science in Bioprocess Engineering and from Carnegie Mellon University (2016) with a Master of Science in Materials Science & Engineering.